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Italy April EU inflation revised up to 3.6 pct

ROME - Italian EU-harmonised inflation for April was revised up to 3.6 percent on Wednesday, back to March's record level, underscoring the tough challenge the new government faces to boost consumer morale in a flagging economy.

Statistics agency ISTAT had given a preliminary forecast that inflation would ease a touch to 3.5 percent. Month-on-month prices rose 0.6 percent, slightly faster than the 0.5 percent ISTAT had initially said.

Italian CPI, which in recent years has usually been below the euro zone average, was higher in April when the bloc's average inflation eased to 3.3 percent from March's 3.6.

Data released in Paris on Wednesday showed French CPI eased to 3.4 percent from 3.5 and Spanish inflation fell for the first time in nine months to 4.2 percent from 4.5 percent.

Deutsche Bank economist Susana Garcia said Italian inflation was a major problem facing new Prime Minister Silvio Berlusconi who has promised tax cuts to spur an economy that is slowing towards stagnation.

"The real economy is going to suffer, especially with consumer confidence very low as strong inflation makes purchasing power very low," she said.

Italian inflation is being driven, as it is around the world, by higher fuel and food prices.

Garica said that even if Italy can afford to cut taxes, stubbornly high inflation would dent any positive impact that might have on consumer confidence which is at four-year lows.

"For any impact, you need people to believe the package is going to work. They need to be confident about the future. It is difficult to see a rebound in consumption," Garcia said.

Berlusconi, whose centre-right coalition returned to power this month after almost two years in opposition, said in his first parliamentary speech since his comeback he would keep a lid on public spending while gradually reducing tax.

During most of his last term in office, Italy's budget deficit breached the European Union's 3 percent of GDP ceiling.

With GDP growth seen by economists in a Reuters poll slowing to 0.6 percent from 1.5 percent last year, the new government is aware that keeping the deficit under control remains a major challenge.